UK budget deficit far bigger than expected

London — The UK government borrowed almost £15bn more in the financial year that just ended than official budget forecasters had estimated a month ago, heaping more pressure on the public finances.

Public sector net borrowing for the 2024/25 financial year ended March was £151.9bn, the Office for National Statistics (ONS) said on Wednesday, the third-biggest year for government borrowing in cash terms on record.

In its forecasts published in March, the Office for Budget Responsibility (OBR) had projected a budget deficit of £137.3bn.

With chancellor of the exchequer Rachel Reeves’ budget plans hinging on a tiny buffer against the government’s self-imposed fiscal rules — equivalent to less than 1% of annual spending — investors are watching public sector finance data more closely.

British government bonds, known as gilts, have become increasingly volatile in recent years, reflecting unease in financial markets over the UK’s mix of low growth, high debt interest costs and persistent inflation.

A closely watched business survey on Wednesday suggested much of the economy slowed sharply in April. 

“We will never play fast and loose with the public finances, that’s why our fiscal rules are non-negotiable,” deputy finance minister Darren Jones said in a statement.

As a percentage of economic output, the budget deficit in 2024/25 was 5.3%, up from 4.8% in 2023/24. The OBR last month projected a reading of 4.8% for the year just ended.

Alison Ring, director of public sector and taxation at the ICAEW, a professional body for chartered accountants, said tax hikes enacted on businesses this month should help the public finances later this year — at least in theory.

“Unfortunately, the public finances remain vulnerable to the economic headwinds caused by those tax rises that, together with a global trade war, are likely to put significant pressure on the chancellor,” Ring added, referring to Reeves.

The Institute for Fiscal Studies think-tank said the data shows the risk of running a budget with only £10bn of room to spare before running afoul of the fiscal rules by 2029/30.

In March alone, the government borrowed £16.444bn, the ONS said, compared with the median forecast of £16bn in a survey of economists.

Debt interest costs in March stood at £4.3bn — a record for the month.

The ONS revised up borrowing for the previous 11 months of the 2024/25 financial year, largely reflecting new data that showed a weaker picture for tax receipts, including corporation and income taxes.

The Debt Management Office said on Wednesday it planned to issue more treasury bills in response to the 2024/25 borrowing overshoot, rather than gilts.

Reuters